The two most-populous states, California and Texas, are home to 67.8 million of America’s 325.7 million residents, some 20.8% of the population.
These two big states are alike in many key respects, even while being very different in others. Both states are large in land area and population, blessed with abundant natural resources, and diverse. They also have a widely divergent governance. California has high taxes (with the nation’s highest individual income tax bracket), heavy regulations, and a burdensome lawsuit climate.
Texas, on the other hand, has low taxes and no individual income tax, a light and predictable regulatory regime, and a lawsuit environment that could use additional reforms, but is far better than California’s.
Because of California’s and Texas’ similarities, their stark policy differences offer an opportunity to test outcomes. This essay is one in a series that examines those differences.
First of all, the basics.
Geographically, both states are large, with Texas having 268,597 square miles, making it the second-largest state after Alaska, of which less than 2% is federally-controlled land. California is the third-largest state with 163,696 square miles of which the federal government controls almost 48%.
On the matter of jobs, Texas has the advantage.
Texas’ labor force participation rate—the share of the working age population with jobs—was 63.7% in September 2018, compared to 62.0% in California. Generally, higher labor force participation is associated with lower rates of poverty, because the best path out of poverty is a job.
The U.S. Census Bureau reported that the share of California’s residents living in poverty according the new, more comprehensive Supplemental Poverty Measure, was 19%, as averaged in the years 2015 through 2017. In Texas, 14.7% were considered poor, making California’s poverty rate proportionately 29% higher than Texas.’
Comparing employment in the two states from the official end of the Great Recession in June 2009 to September 2018, the U.S. Bureau of Labor Statistics reports that seasonally-adjusted nonfarm employment increased by 19.2% in California vs. 22.5% in Texas. The table below summarizes the performance of key employment sectors in these two states over the nine years and three months since the end of the recession.
A note on the ongoing contraction in California’s Mining and Logging sector employment, of which oil and gas extraction is a key component: There were 22,000 people employed in this basic industry in September 2018 in California, about a third of which were in the timber harvesting sector, compared to 263,600 in Texas. This amounts to 0.2% of the private sector workforce in California and 2.5% in Texas.
Some of the job loss in California can be attributed to the state’s regulatory and tax burden on the oil and gas industry as well as federal and state regulations affecting the vast forestlands of Northern California. And the oil and gas industry is capital-intensive rather than labor-intensive, an important fact to consider when critics of Texas contend that its success is due entirely to oil and gas.
More recently, Texas has continued its employment dominance over California. Looking at the past 12 months periods, Texas gained 406,400 nonfarm jobs through September, a 3.3% growth rate, compared to 339,600 jobs in California, growth of 2.0% over a year earlier. Over the past 24 months, California added 647,100 jobs compared to Texas’ 583,700 jobs, but the rate of growth in the Lone Star State was greater, 4.8% vs. 3.9% in California.
So, while California and Texas have significant similarities, they also feature diametrically opposed political governance, with California favoring higher taxes and bigger government compared to Texas.
These policy differences are likely the main reason why Texas has seen stronger employment growth, as small business owners, Fortune 500 companies, and investors alike seek the greater opportunities available in Texas.